Short-Term Persistence in Hybrid Mutual Fund Performance: The Role of Style-Shifting Abilities

Abstract

Our study analyzes the performance of hybrid mutual funds. Based on two extended Carhart models we determine total fund performance by comparing fund returns to investable fund-specific style benchmarks. Using daily returns and a quarterly measurement interval, we present an innovative return-based approach to separate total performance into in-quarter abnormal performance and style-shifting performance. Additionally, we split total style-shifting performance into active and passive components. In this context, passive style-shifting performance is the result of a buy-and-hold investment into the fund-specific benchmark. Finally, we analyze short-term persistence in fund performance for several performance measures. Our empirical study covers 520 hybrid mutual funds from 10/1998 to 12/2009 and shows that hybrid mutual funds i) do not outperform their benchmarks on average, ii) partially show positive in-quarter abnormal performance and style-shifting abilities, and iii) demonstrate short-term persistence in in-quarter abnormal performance but not in style-shifting abilities.